Back in June of last year I wrote about Lending Club. It has been about 9 months and I am ready to offer my experience and opinion about the site and its value proposition to the average Jane and John Doe.
Since June of 2012 I have invested in 40 notes off of the Lending Club Note Trading Platform. I used the criteria that was set out in my original post, which included loans that were never late and had fewer than 36 payments left. I setup automatic withdrawal for $25 a week during the investment period. A small amount, but it will illustrate a point soon.
Out of the 40 notes I had 1 default, 4 loans paid off early and 35 current with payments being made. My average (according to Lending Club) interest rate hovered around 8%.
See Below for screenshots:
I will let you look at the numbers to determine if they are acceptable or not. What I want to focus on are the mechanics of using Lending Club and whether I think the site is worth the time and effort.
As I mentioned in my earlier post, I feel that Lending Club’s Note Trading Platform is merely a secondary market for the originating investors. It allows them an exit from their investments that would otherwise be illiquid for the next 3-5 years.
I still hold this opinion and my exeperience supports it. I believe in paying attention to details that some may otherwise ignore, because those details can provide a lot of insight into larger tendencies. In the caes of Lending Club, I have yet to get a formula from them on how they come up with their yeild to maturity. Strike 1.
As I mentioned in my previous post, the Note Trading Platform is wholly inadequate. It lacks some basic but important features to allow secondary market investors (that is us John and Jane Does) to do quick and easy loan searching, filtering and investing. I dont get the feeling that we (secondary market investors) are that important. Strike 2.
My experiment consisted of depositing $25 a week and then using the funds to buy notes as I could that satisfied my criteria. With only one or two exceptions, I never bought a loan that was more than $20-30, this was for the purpose of diversifying quickly. $25 a week is not a lot to invest but I ended up constantly having to search just to find a loan worth buying that was in the targe price range. The note trading platform does not make this process any easier.
My point here is that scaling this experiment with a more substantial sum would require much more effort and the patience to refrain from buying more expensive notes and losing the much needed diversification. Strike 3.
In doing this quick writeup I noticed another problem that I consider to be inexcusable – Lending Club does not keep activity longer than six months. Are you kidding me???
In the age of big data and considering the value of this information for anyone who is really interested in digging into the numbers of their investment this is just not kosher. I see no reason for Lending Club not keeping this data available for their investors. I can most assuredly bet that they are keeping the data for themselves. Strike 4.
I have decided to stop my automatic investments and let my remaining loans play out. I love the concept of P2P lending but not the way Lending Club is approaching it. I feel that their secondary market is a sham that serves more as an exit for the originating investors than it does an actual market for everyone else.